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Bonus Pay at AIG Strikes a Nerve

October 9th, 2009 at 02:00pm Under Economy Report

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This is the VOA Special English Economics Report.

Anger was the common reaction of Americans this week to bonuses paid at rescued financial companies. Lawmakers held hearings and President Barack Obama denounced the extra pay at American International Group. The huge insurance company nearly collapsed last September.

A.I.G. chief Edward Liddy waits to speak to lawmakers on Wednesday. Code Pink protesters demonstrate behind.

Since then, it has received more than one hundred seventy billion dollars in government aid. Taxpayers now own about eighty percent of the company. Billions loaned to A.I.G. have gone to pay debts owed to Goldman Sachs and other American and foreign banks.

But the anger was directed mainly at one hundred sixty-five million dollars in bonuses paid to employees of A.I.G. Financial Products. That division caused many of the company’s problems.

The bonuses were retention payments — a way to keep good employees. Yet some who got them at A.I.G. have already left.

On Wednesday, A.I.G.’s new chief, Edward Liddy, told Congress that he has asked employees to return at least half of bonuses of one hundred thousand dollars or more. Some, he said, have already done so.

Even some critics agreed that A.I.G. had to honor contracts. But Thursday, the House of Representatives voted to place a ninety percent tax on those bonuses at A.I.G. and at other companies getting large bailouts. Yet such a measure could violate the Constitution’s guarantee of equal protection under the law.

Earlier in the week, the president directed Treasury Secretary Tim Geithner to look for ways to block the bonuses. But there were questions about why new restrictions on companies had excluded contracts dated before February eleventh, including those at A.I.G.

Opinion polls show that more than half of Americans oppose more aid for the financial industry. Some observers said it was easy for politicians to attack big bonuses. Much harder, of course, is changing a system that let companies take the risks that led to the current financial crisis.

The Federal Reserve this week announced a new trillion-dollar plan to fight the recession. The aim is to help lower interest rates on housing and other loans and improve credit conditions.

The central bank said it would buy up to an additional seven hundred fifty billion dollars in mortgage-related securities. The Fed will also buy up to three hundred billion dollars of long-term Treasury bonds. The Fed has not tried to influence long-term rates this way since the nineteen sixties.

And that’s the VOA Special English Economics Report, written by Mario Ritter. Transcripts, MP3s and podcasts of our programs are at voaspecialenglish.com.

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US Treasury Details Plan to Rescue Banks

October 3rd, 2009 at 01:51pm Under Economy Report

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This is the VOA Special English Economics Report.

This week American Treasury Secretary Tim Geithner announced details of a plan aimed at removing billions of dollars in bad debts from American banks.

The government program has two parts.  One involves buying groups of loans, like home mortgages.  The second involves buying securities or financial investments tied to loans.  Under the plan, the federal government will partner with private investors to buy bad loans made by banks.

Treasury Secretary Timothy Geithner speaking to lawmakers in Washington on Thursday

These bad loans, also called toxic assets, have weakened American banks and interfered with normal lending.  The Treasury Department says it will offer low interest loans to private investors so they will buy billions of dollars in toxic assets and get American banks lending again. The Obama administration says if the plan is a success, it could remove as much as one trillion dollars in bad loans.

No one knows how much government money might be needed.  But during the past six months, more than seven hundred billion dollars has been committed to cleaning up the bad loans in the banking system.

The plan was first announced last month without many details. The stock market fell.  However this week, news of the plan sent prices higher on the American and international stock markets.  Following the announcement Monday, share prices of thirty major American industrial stocks increased almost seven percent.  This was the biggest one-day gain since October. Mister Geithner said it will take several weeks for his plan to be properly judged by financial markets.

The deep international economic slowdown began in August, two thousand seven.  That is when failures in the American home mortgage market caused financial markets to decrease lending.

First the American and then the world economy slipped into recession.  Since then, several efforts to unlock credit have failed. Some experts say there will be no other choice but short-term nationalization of troubled banks if the Geithner plan fails to help the financial system.

This week Secretary Geithner also called for increased powers to control other financial businesses, like the insurance company American International Group.  Mister Geithner said the Obama administration will continue working with Congress on details of the proposal.

And that’s the VOA Special English Economics Report, written by Brianna Blake. Transcripts, MP3s and podcasts of our programs are at voaspecialenglish.com. I’m Steve Ember.

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